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Textbooks / Business / Principles of Economics 6 / Chapter 8 / Problem Problems and Applications 8.11

Suppose that a market is described by the following supply and demand equations: QS 5 2P

Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw ISBN: 9780538453059 472

Solution for problem Problems and Applications 8.11 Chapter 8

Principles of Economics | 6th Edition

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Principles of Economics | 6th Edition | ISBN: 9780538453059 | Authors: N. Gregory Mankiw

Principles of Economics | 6th Edition

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Problem Problems and Applications 8.11

Suppose that a market is described by the following supply and demand equations: QS 5 2P QD 5 300 P a. Solve for the equilibrium price and the equilibrium quantity. b. Suppose that a tax of T is placed on buyers, so the new demand equation is QD 5 300 (P 1 T). Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? c. Tax revenue is T 3 Q. Use your answer to part (b) to solve for tax revenue as a function of T. Graph this relationship for T between 0 and 300. d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is 1 2 3 base 3 height, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and 300. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.) e. The government now levies a tax on this good of $200 per unit. Is this a good policy? Why or why not? Can you propose a better policy?

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Textbook: Principles of Economics
Edition: 6
Author: N. Gregory Mankiw
ISBN: 9780538453059

Since the solution to Problems and Applications 8.11 from 8 chapter was answered, more than 238 students have viewed the full step-by-step answer. Principles of Economics was written by and is associated to the ISBN: 9780538453059. This textbook survival guide was created for the textbook: Principles of Economics, edition: 6. This full solution covers the following key subjects: . This expansive textbook survival guide covers 36 chapters, and 670 solutions. The full step-by-step solution to problem: Problems and Applications 8.11 from chapter: 8 was answered by , our top Business solution expert on 03/16/18, 04:26PM. The answer to “Suppose that a market is described by the following supply and demand equations: QS 5 2P QD 5 300 P a. Solve for the equilibrium price and the equilibrium quantity. b. Suppose that a tax of T is placed on buyers, so the new demand equation is QD 5 300 (P 1 T). Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold? c. Tax revenue is T 3 Q. Use your answer to part (b) to solve for tax revenue as a function of T. Graph this relationship for T between 0 and 300. d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is 1 2 3 base 3 height, solve for deadweight loss as a function of T. Graph this relationship for T between 0 and 300. (Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.) e. The government now levies a tax on this good of $200 per unit. Is this a good policy? Why or why not? Can you propose a better policy?” is broken down into a number of easy to follow steps, and 219 words.

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Suppose that a market is described by the following supply and demand equations: QS 5 2P